Earnings Preview: Improved 2Q profits seen for IBM

OVERVIEW: IBM's broad international penetration continues to buoy the technology company, though investor worries abound that the economic slump in the U.S. that has pinched off spending in many corporate IT departments is now spreading abroad.

IBM's bread and butter is its services division, which sells consulting and other types of aid to companies looking to improve their profitability, or find more effective ways to manage their information technology infrastructure.

While those kinds of expenses are usually curtailed in times of economic distress, IBM has managed to grow that part of its business because of its reach in emerging markets. The recurring, annuity-like revenue streams associated with many of the contracts also fortifies IBM against seesawing market conditions.

And in a counterintuitive twist, because of the economic malaise in the U.S., the Armonk, N.Y.-based company has actually experienced a pickup in business from some domestic companies. They're looking for guidance on where they should cut costs and how best they can weather the economic downturn.

BY THE NUMBERS: Analysts predict that IBM will earn $1.82 per share in the quarter ended in June, according to a survey by Thomson Financial. That represents a 21 percent increase from IBM's profit in the year-ago period.

Sales are expected to be $25.92 billion, a 9 percent increase over last year.

ANALYST TAKE: IBM has been effective at improving the profitability of all its divisions, which include the technology services, software and servers. The February launch of its new System z10 mainframe computer, which starts at about $1 million and has more energy-saving features than older models, could provide a lift as well.

Although IBM's storied line of mainframes is facing intense competition from smaller, lower-cost servers widely found in corporate datacenters, they're still very popular with financial institutions and government agencies because of their reliability.

Analyst Shaw Wu with American Technology Research raised his profit and sales estimates on IBM this week, in part because of momentum in IBM's mainframe business. Wu said there's a "fair likelihood" that IBM could raise its profit target.